DENNIS Canavan, chairman of the Yes Scotland campaign, yesterday became the latest senior figure to back a separate Scottish currency in the event of independence.

Mr Canavan stressed it was his personal view, but his intervention will come as a major embarrassment to the Scottish Government, which wants to continue with sterling if there is a Yes vote in the referendum.

It was described as a “direct challenge” to the authority of Alex Salmond, and showed the depth of disagreement over a future currency in a separate Scottish state.

Mr Canavan, a former Labour MP and independent MSP, joins Patrick Harvie, of the Scottish Greens, and Colin Fox, of the Scottish Socialist Party, in hoping for a uniquely Scottish currency. Others within the SNP and the Yes Scotland campaign also back a separate currency rather than trying to forge a so-called “sterling zone”.

Mr Canavan said: “My preferred option is for Scotland to have its own currency because I think that would give us more flexibility, more freedom. It would give us a wider range of economic levers.

“If Scotland were to have its own currency, then it would have far more freedom to do its own thing, and it would have a full range of economic levers to determine its own economic policy.”

Chancellor George Osborne last week said it was unlikely the remaining UK would agree to a currency union with a separate Scotland without strict controls over a Scottish budget.

Mr Canavan also said that he would consider joining the euro if that currency recovered sufficiently. But Liberal Democrat leader Willie Rennie said: “If the nationalists can’t agree amongst themselves, what chance have they got of convincing anyone else about a future currency for an independent Scotland?

“This shows the increasing amount of dissent within the Yes camp, which far from providing certainty only creates the impression of chaos. This is a direct challenge to Alex Salmond’s authority.”

This is a direct challenge to Alex Salmond’s authority

Willie Rennie, Lib Dem leader

Former Chancellor Alistair Darling said: “How on Earth can they ask people to vote for independence when they can’t even agree amongst themselves the most basic and fundamental things like what currency we would use?”

Speaking to Channel 4 News, Mr Salmond defended his policy, saying an independent Scotland’s monetary policy would be run by the Bank of England, but tax and spending would be set by Edinburgh.

Mr Salmond insisted: “The Bank of England would operate as a central bank for the both England and for Scotland.”